client meeting

In any relationship, what you say and how you say it matters. Canadian securities regulators recognized the importance of clear and transparent communication in helping clients understand the advisory relationship: they made sure to include requirements for better communication in the client-focused reforms (CFRs).

This article, which is the fifth in my CFR series, looks at how advisors need to avoid misleading communications and provide expanded relationship disclosure to clients.

These two elements of the CFRs will impact how advisors hold themselves out to clients and prospects, and the types of conversations advisors should have when they start a new client relationship.

Avoid misleading communications

There are new requirements in the CFRs related to misleading communications. Those requirements prohibit you from “holding yourself out” in a way that may mislead or deceive current or prospective clients in a few different areas, including:

  • proficiency, experience, qualifications or registration category
  • titles, designations, awards or recognition, if based entirely or partly on sales or revenue generation
  • corporate officer titles

The regulators are concerned that advisors holding themselves out with prestigious-sounding titles or designations tied to sales activity or revenue generation may create unfounded feelings of prestige or trust, or that it may mislead a client about the advisor’s proficiency, experience or qualifications. Your firm will be required to approve your use of all titles and designations.

The CFRs also prohibit an advisor from holding out with a corporate officer title (such as president or vice-president) unless that title has been duly granted by their sponsoring firm and wouldn’t mislead a client.

In addition, your firm will have to review the CFR requirements when advertising or describing the products and services the firm provides. Firms that offer primarily or exclusively proprietary products shouldn’t hold out that they offer a wide range of products.

Be sure to consult with your firm about policy changes in these areas, which may impact your business cards, email signatures, websites and social media.

Provide expanded relationship disclosure information, help clients understand the advisory relationship

There has always been a requirement for clients to receive “all information that a reasonable investor would consider important about the client’s relationship” with the dealer and advisor. This disclosure requirement is usually met by delivering a brochure to a client at account opening.

The CFRs add new requirements about what to include in the brochure. While I won’t list all the additions, some areas requiring new disclosure are noteworthy:

  • a description of any limits on products or services a firm offers, including whether they offer primarily or exclusively proprietary products
  • a statement of the new “client’s interest first” standard
  • an explanation of the impact of fees on client returns

In addition to the increased disclosure in the brochure, I always suggest that a conversation with the client on key information about the relationship is a good way to help the client understand the relationship from the outset. It’s just not realistic to expect a client to read the fine print and understand which elements are most relevant, and the brochure may not cover everything that’s important to them. It’s helpful for you to cover a few key points, either in conversation or even by directing the client to specific sections of the brochure that they should be aware of.

Here are some things to cover:

  • What you can do for them. Provide a clear understanding of the scope of products and services you offer.
  • How often you will meet with them. Will it be in person or virtually, annually or more often? Will you be available to them by phone or email at other times? Let them know when they can expect regular portfolio reviews.
  • The types of fees they will incur and how they will pay them. Be transparent about the fees they’ll pay, both directly and indirectly. Be open about your fees and how you are paid — clients appreciate the transparency. Also help the client understand the impact of fees on their investment returns, and explain how you’re watching out for fees on their behalf.
  • The types of products you offer. Let clients know if there are any limitations they should know about. If they have an interest in socially responsible investing or other investing considerations, discuss your approach.

Look for ways to provide greater clarity about key elements of your relationship. Don’t assume that clients understand industry terminology. Instead, use plain language and avoid acronyms.

If a client wants to become a more informed investor, you can help educate them. An informed client is an engaged client, so connect them to resources provided by your firm, such as newsletters, market updates, relevant approved articles, webinars and videos. If you regularly share thought leadership content on social media, connect with your clients so they can read your posts.

While the CFRs will have an impact on your client interactions, they can be viewed as an opportunity to deepen relationships with both current and prospective clients. Be transparent and expand your conversations to help clients better understand your relationship with them. This transparency will lead to a more open and honest relationship, and to clients understanding and appreciating the time you take to educate them and the value you deliver.

What’s good for clients is also good for you and your business.

Susan Silma is head, regulatory business practices, at Sun Life Financial Investment Services. She is a lawyer and former regulator, and is passionate about integrating compliant practices into a positive advisor-client relationship.